For many Ontarians, their home is there most valuable asset. However, the details of how title to the property is held is crucial for determining ‘who gets what’ on death of a homeowner.
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There are three main ways that a homeowner can own a home, and the way title is held dramatically affects their estate and heirs.
As sole owner
If there is only one owner on title, then the home will fall into the estate of the homeowner.
If the homeowner had a will, then the house will be dealt with pursuant to will – perhaps by life interest, or specific bequest, and failing that, the house will be sold and the value distributed as part of the residue of the estate.
If there is no will, then the house will be dealt with as an asset of the estate and the value distributed after sale to the beneficiaries under the Succession Law Reform Act.
Sole ownership is very common for senior homeowners, especially if they are widows or widowers, even if have a ‘new’ or ‘second’ spouse. Sole ownership is also common when one spouse is an entrepreneur or has had or might have creditor issues.
Note: if the sole homeowner is in a common law relationship and the homeowner dies without a will, the common law spouse will likely have no right to inherit any of the value of the house or any other aspect of the estate, but they may have a dependent support claim against the estate.
As joint tenants
Joint tenancy (or more formally ‘joint tenants with a right of survivorship’) is the most common way for legally married spouses to hold ownership of their house in Ontario.
If one joint tenant dies, they cease to be an owner, and the remaining joint tenant continues as the owner. (There can actually be more than 2 joint tenants, but 2 is the most common).
Note, the ownership does not ‘pass’ or ‘transfer’ on the death of the first joint tenant. Instead, the first to die ‘drops off title’ leaving the previous owner(s) still on title. For this reason:
- a property owned by two spouses as joint tenants does not fall in to the estate of the first spouse to die and is NOT dealt with under their will; and
- a property owned by two spouses as joint tenants does not require probate and is not included in the calculation of Estate Administration Tax when probating the estate of the first joint tenant to die.
Note: Joint tenancy between a parent and any of their adult, financially independent children gives rise to a rebuttable resulting trust in favour of the parent’s estate and the above rules may not apply. Joint tenancy with an adult child is an old-fashioned risky way to try to minimize probate taxes. It can be challenged by beneficiaries of the estate (see this page)
If two joint tenants die at the same time, the joint tenancy and each is treated as a tenant-in-common.
Properties may be owned by two or more people (including corporations) as ‘tenants-in-common’. When title is held in this manner, each owner has a DIVIDED percentage interest in ownership of the property. If the percentage is unspecified, it is equal for each tenant-in-common.
When a tenant-in-common dies, their share of the property does pass in to their estate and must be dealt with pursuant to the rules (will or intestacy) applicable to their estate.
For both probate and in estate disputes, determining the value of a tenant-in-common’s share of a property can be quite difficult. Is a 10% interest worth 10% of the gross fair market value of the property? What about real estate commission and other expenses? What about possible income tax considerations (if the property was not a principal residence of all tenants-in-common)? Does the other tenant-in-common have an option to purchase? A right of first refusal?
Severance of Joint Tenancies
A joint tenancy may be converted to a tenancy-in-common by any joint tenant, unilaterally. This process is called ‘severing the joint tenancy’. The consent of the other joint tenant(s) is not required. Title to a property held by two former spouses can be severed by one without a divorce or family law proceedings.
This is extremely useful if the joint tenants have separated as a couple, so that each can dispose of their half of the property to their heirs rather than the house passing 100% to the surviving spouse (and that person’s heirs). Put another way, a common cause of mangled estate plans is the failure to sever a joint tenancy when homeowners end their spousal relationship.
The severance of a joint tenancy requires clear, unequivocal action to sever the joint tenancy. Simply separating as a couple is not sufficient to sever the couple’s ownership of their house. By far the best way to sever a joint tenancy is by registering the severance on title to the property. Claims that title has been severed by actions less than this are very difficult to prove.
If two joint tenants die at the same time, the joint tenancy is automatically severed, and each is treated as a tenant-in-common.
Partition and Sale
Tenants-in-common are not forced to remain co-owners indefinitely. Every tenant-in-common has the right to force the partition and sale of their interest in the property for its ‘fair market value’.
This is an equitable right, and hence will be affected by issues of fairness among the co-owners.
As a general rule, sales should be at fair market value to arms-length third parties, and a co-owner –
- does have the right to bid on the property;
- does NOT have a right of first refusal to purchase the property;
- cannot force a private sale of the property to themselves or a related party; and,
- does NOT have an option to match the highest bid (as the existence of such an option would suppress interest from third parties).
However, the terms of each sale can be influenced by equitable considerations including the tax consequences to the parties.
These principles should be applied to an estate that owns a part interest in a property – both for probate, and any disputes.